Telecom Q3 Results Preview: Earnings Growth Likely To Be Steady, Revenue To Rise

The earnings come at a fortunate time for investors as the telecommunication sector of India is signalling to achieve a higher position at the global level. The Oligopoly market situation in India's telecom sector has facilitated the three service suppliers in India to stay afloat and enjoy the ride with minimum rivals and almost similar competitive charges. The sector expects to surge significantly, eyeing the surging investments made after receiving the 5G spectrum licences by Reliance Jio and Bharti Airtel in 2023.

The private access service providers held a 91.75% market share of the wireless subscribers whereas BSNL and MTNL, the two PSU access service providers, had a market share of only 8.25%. India's top five service providers constituted 98.35% market share of the total broadband subscribers at the end of October 23. These service providers were Reliance Jio Infocomm Ltd 462.34 million, Bharti Airtel 258.26 million, Vodafone Idea 125.68 million, BSNL 25.09 million and Atria Convergence 2.21 million. Bharti Airtel has the maximum proportion of 99.16% of its active wireless subscribers (VLR), while MTNL has a minimum of 26.8% of the total HLR.

The revenue share towards 5G capital expenditure decreased to 35% this fiscal, compared to 37% in the previous. Despite the strong potential in later years, the EBITDA for the sector is expected to increase by an average of 2%, which was 2.1% in fiscal 2023. Fitch Ratings have forecast the report sharing that lower spectrum charges for usage, cost reduction in technology, and 5G user increase would push for a higher average revenue per user (ARPU) for the sector in general. As per earnings by user base, Bharti Airtel is the only telecommunications player in the Indian market to achieve the target of Rs. 200/- ARPU, starting for a further climb. The tariff hikes are expected to be above 20% this year, lurking in the second half, once the general elections in India commence this Summer.

5G Advanced and 5G RedCap (Reduced Capacity) are the key emerging technologies that can attract higher spending from IoT (Internet of Things) users. As per Juniper Research, revenue generation is expected to surge by 32% in 2024, or more than $400 billion for the telecommunications sector. The research firm also forecasts a 10-fold increase in IoT users within the next four years. Fixed Wireless Access (FWA) is one of the significant services for service providers to have competitive rates and tariffs ahead.

India will need ~22 million skilled workers in 5G-centric technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), robotics and cloud computing ahead. It indicates a strong potential for the telecommunication sector to increase employment besides the user base in India. Data consumption through wireless connection in 2023 for India is one of the highest in the world and crossed the GCC (Gulf Cooperation Council). As per the recent reports, more than 31 GB of internet data was consumed by Indians per month last year. The forecast for the global average is around 75 GB by 2029. A rapid decrease is expected in 4G subscribers, noting the rise in 5G and new-generation technology.

The Telecom Regulatory Authority of India (TRAI) in December 2023 exclaimed regarding a substantial increase in 5G subscriptions since the commercial launch fifteen months ago. In September alone, Jio added some 3.4 million subscribers, while Airtel's subscriber base increased by 1.3 million users in India. Contradicting this, Vodafone India or VIL lost more than 7.5 lakh subscribers in the same month.

Although India ranks 47th in fastest mobile speed in the world, currently offering an average 50 Mbps speed compared to 210 Mbps witnessed in UAE. India's average mobile data traffic per smartphone in 2023 has hit 31GB per month, crossing that of GCC countries for the first time this year, which were at 30 GB a month.

The earnings are expected to rise in the upcoming tenure with support from the government in technology and authorisation. The increasing dependency on connectivity with the booming smartphone business in India shines a gleam towards a positive trend in the share prices of the stocks related to the telecommunication sector. A 100% FDI is allowed by the Indian government for this sector, which would attract global investors. The current market situation suggests that most of the funds would divert towards Reliance Jio and Bharti Airtel. Retail investors must consider holding these stocks for 2024, expecting an increase in share demand by institutional investors ahead. Today, the share price of Bharti Airtel floats around Rs. 1,081.1/-, RIL shares are at Rs. 2,723.5/-, Tata Communications stood at Rs. 1,690/- and VIL shares ended at Rs. 15.1/-.